What is a Principal Agent in Negotiation?
In many business negotiations, you will find an agent negotiating on behalf of the principal party. This unique principal-agent relationship can cause challenges at the negotiating table.
Sometimes negotiations lead you out of your comfort zone and into unfamiliar territory. When you’re unsure of the issues under discussion or the rules of the game, you’d be wise to seek out an experienced agent. This principal agent then negotiates on the principal’s (your) behalf. One typical example is hiring a real estate agent to negotiate the sale or purchase of a home on your behalf.
At times, a principal agent can improve the quality of negotiations. When we lack the knowledge, experience, or access needed to carry out a particular negotiation effectively, hiring an agent can be a smart choice. However, even though agents can be indispensable in specific contexts, their role can be fraught with peril for the principal, as principal agent theory suggests.
This theory, which emerged in the 1970s from a number of economists and theorists, describes the pitfalls that often arise when one person or group, the “agent,” is representing another person or group, known as the “principal.”
Agents may have a different stake in the outcome or may receive different rewards than the principal. These types of imbalances in the negotiation may give rise to problems in the negotiation strategy. Whether they recognize it consciously or not (and research suggests that most don’t), even the most ethical agents routinely face a conflict of interest between recommending what’s best for you versus what would benefit them the most financially.
Whenever you decide to consult with negotiating advisers—but especially when you are anxious— be sure to vet them carefully, identify potential conflicts of interest, and factor their biases into the advice you receive.
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